Health Care Reform

By Gary Smith –Independent Business Association (IBA)

WAA members and their clients will soon have to comply with the national health care reform law that was recently upheld by the U.S. Supreme Court. This will all start in October 2013 and require compliance as of 1/1/2014.

WAA asked the Independent Business Association to prepare this special report for WAA members to help them understand this new law and to help them advise their clients about how the law may affect their clients.

Here are the questions many individuals and smaller businesses are asking and we are going to answer how this new law will likely affect you and your clients (including individuals and small businesses), below:

How will the health care reform law affect me and my small business?

Will I be able to keep the health care plan I have now?

Will how I buy health insurance change?

Where will I buy approved health insurance?

What health insurance choices will I have?

Will I pay more or less for health insurance?

What happens if I have a pre-existing health condition?

Do I have to provide insurance for my employees?

When does all of this go into effect?

How will the health care reform law affect me and my small business?

YOU and your family will be required to be covered by a state-approved health care plan or pay a federal tax penalty of 1.0% of your income in 2014, 2.0% in 2015, and 2.5% thereafter, or a flat dollar amount phased in as follows: $95 in 2014, $325 in 2015, and $695 in 2016 and beyond (adjusted for inflation). The tax penalty will be capped at 300% of the annual flat dollar amount, and is enforced on a month-by-month basis, meaning you will have to pay the tax penalty for any month in a year that you do not have coverage under an approved health care plan.

YOUR BUSINESS If you employ 50 or more employees, you will be required to provide your employees with an approved health care plan or pay a penalty of $3,000 per non-covered worker qualifying for a government subsidy, or $2,000 per full time employee (less 30 employees) whichever is less. The penalty issue is somewhat complex to explain so we will leave that for another time. Businesses that employ less than 50 employees have no mandate to provide health care insurance for their employees. Small businesses with 100 or fewer employees will have the opportunity to participate in SHOP exchanges where small businesses will be able to pool together to buy insurance plans at a presumably lower cost. Washington State is still working out the details of these SHOP programs.

Will I be able to keep the health care plan I have now?

Legally yes – existing health care plans are grandfathered in as meeting the new requirements whether they do or not.

But existing health care plans will soon be phased out or changed . . . . . because, for any health care plan to survive, the health plan must have new enrollees to achieve a “normal selection” or risk. Since an existing health care plan probably will not meet the federal and state requirements as an “approved” health care plan under this new law, it will not be an approved health care plan that meets the requirements under the new mandate that everyone must be covered. So within a year or so, you will likely have to switch to another health care plan or your plan will change.

Following are the requirements of the national health care reform law with respect to keeping your existing plan:

If your plan was in existence prior to March 23, 2011, the insurer cannot make major changes to the plan. Once major changes are made, for example changes in benefits or cost sharing, then the plan loses its grandfathered status and must comply with additional national health care reform plan requirements.

Will how I buy health insurance change?

Yes, you will have to buy an approved Qualified Benefit Plan (QBP) to meet the coverage mandate requirements as they apply to you, if your current plan is not grandfathered in. An approved QBP plan must include the following:

Cover the Essential Benefits as defined by federal and state law

Must also provide

Guaranteed Issue

Modified Community Rating

Must comply with 17 other requirements

Must meet one of the 4 plan designs defined by the federal government – more later

Where will I buy health insurance?

Probably from the NEW state-run health insurance entity called - the “Exchange”

All QBP approved plans, that meet the new health insurance mandate for individual and businesses, will be available through the Exchange. The Exchange will combine premiums paid by individuals, premiums paid by employers, and government subsidies into one single payment and pay it to the insurer to pay the premium for that individual. Individuals and small business are likely to shop for health plans through the Exchange. The federal government pays for the operation of the Exchange for one year (2014) but the new federal health care reform law requires the State of Washington to fund the operation of its Exchange starting in 2015 and beyond. The 2013 Legislature will likely decide how that will be done and who will pay. The projected cost of operating the Exchange is projected at $100 million per year.

Buying insurance outside the Exchange will be much different than it is today. Not all approved health care plans required to meet the health insurance mandate requirements for individual or businesses will be available outside the exchange. IBA expects the number and variety of plans available outside the Exchange will be quite limited and far less than the current market has available.

What health insurance choices will I have?

You will have to buy a QBP approved plan to avoid the federal tax penalties. There are four different plans that will be required to be available to you under the federal health care reform law. They are:

The Bronze plan that covers 60% of your covered medical costs, and you pay 40% of the cost in deductibles and co-payments. This will be the lowest cost plan you can buy and still meet the mandate to be covered by an approved health care plan.

The Silver plan covers 70% of your covered medical costs, and you pay 30% of the cost in deductibles and co-payments. This will be the second lowest cost plan you can buy and still meet the mandate to be covered by an approved health care plan.

The Gold plan covers 80% of your covered medical costs, and you pay 20% of the cost in deductibles and co-payments. This will be the third plan option you can buy and still meet the mandate to be covered by an approved health care plan.

The Platinum plan covers 90% of your covered medical costs, and you pay 10% of the cost in deductibles and co-payments. This will be the highest cost plan you can buy and meet the mandate to be covered by an approved health care plan.

There is a 90-day waiting period for coverage under an approved health care plan. This provision was added to avoid having individuals sign up for coverage when they determine they need health care services.

Other health insurance plans sold outside the Exchange will likely be much more limited than in today’s health insurance market, due to the new federal and state health insurance reform laws.

Will I pay more or less for my health care coverage?

Probably more for a plan comparable to the plan you currently have. IBA makes this prediction based on the following:

You will be limited to four cost options for approved plans as described in the previous section.

There will be less competition among carriers – likely increasing costs because all plans must meet effectively the same requirements and benefit design competition will not drive down costs.

You will need to have all of the benefit mandates required by federal and state laws.

The Guarantee issue provision requiring insurers to cover all individuals regardless of their health condition – will likely add cost to all plans.

The Community rating requirement imposed by the federal health reform law will likely add cost.

If you are a smoker, you will pay 150% of the premium you would pay as a non-smoker in your age category.

What happens if I or one of my employees has a pre-existing health condition?

The new federal health care reform law requires that all Health Plans must accept all applicants regardless of their health conditions. While this requirement is there, how to implement it has not yet been decided in Washington State and in most areas of the U.S. There are effectively three different ways to meet this new requirement;

Insurers participate in a risk adjustment mechanism where they arrange payments among themselves to compensate other insurers who have a larger number of unhealthy insured’s.

A reinsurance mechanism that insurers can buy for their higher risk insured’s.

The other is to set up a state run High Risk Pool where people with higher cost health conditions get their insurance (more limited plan options) and all insurers pay part of the costs to subsidize the plan. Those enrolled in that Pool will pay effectively the same premiums as would healthy individuals at their same age.

Which option is used in Washington State will be decided by the 2013 Legislature. Washington State has operated a High Risk Pool program for a number year’s now, so they already have experience with this option. The pre-existing health condition requirement in the federal health care reform law will increase premiums we all pay for health insurance; it is just not known by how much.

Do I have to provide insurance for my employees?

Businesses with 50 or more employees must provide an approved health care plan or pay a penalty of $3,000 per insured worker qualifying for a government subsidy, or $2,000 per uncovered full time employee (less 30 employees) whichever is less. If you employ 50 or more employees, now is the time to consider your downsizing options, such as reducing your staff (NOTE: there is an anti-discrimination provision in the federal health care reform law that allows employees to claim discrimination against their employer for being discharged because of insurance coverage – check with a qualified attorney), breaking up your company into smaller and separate operations (NOTE: check with a qualified attorney and tax advisor to determine if this is acceptable – this does not work where there is a common ownership of multiple companies). Employee contributions cannot exceed 40% of the health plan’s cost. In some cases, employers must offer employees earning 400+% of the federal poverty level, a “free choice” voucher which they may use to purchase the coverage of their choosing through a state health Exchange.

When does all of this go into effect?

The individual requirement to be covered by approved health care insurance, and the requirement for employers with 50 or more employees to provide health care insurance for their employees, begins on 1/1/2014. The new Exchange is to be ready to offer health insurance coverage on October 1, 2013 since there is a 90-day waiting period before you can claim benefits under your new plan for pre-existing conditions, if you buy a new plan. It is not yet clear if you must keep your current insurance plan for the pre-existing waiting period to assure coverage during that waiting period.